RBI Changes NPA Disclosure Norms

The Reserve Bank of India (RBI) has brought changes to the bad loan divergence rule for banks.

Details:

• The bad loan divergence practice mandated by RBI aims at improving transparency in asset classification.
• The changes brought in by the RBI are with respect to the NPA Disclosure Norms.

NPA Disclosure Norms:

• Banks are required to disclose divergence when the additional provisioning for NPAs assessed by RBI exceeds 10% of the reported profit before provisions and contingencies for the reference period, instead of the earlier rule of 15% of the published net profits after tax.
• The second condition which prescribed the norms on divergence on gross non-performing assets (NPAs) continues to be a material divergence of 15 per cent, as found by the RBI auditors and as reported by the bank has been left unchanged.

Why the change in norms?

It was found that some banks, on account of low or negative net profit after tax were forced to disclose divergences even where the additional provisioning assessed by the RBI was small.
This was contrary to the regulatory intent that only material divergences should be disclosed.